(CN) - An Oregon financial company must show actual damages to prove that it was defamed by a self-proclaimed investigative blogger, the 9th Circuit ruled Friday.
The federal appeals court in Portland granted a new trial to blogger Crystal Cox, against whom a jury awarded a $2.5 million judgment in 2011 over her blog post accusing the Obsidian Finance Group and its co-founder Kevin Padrick of various illegal activities, including corruption, tax fraud and money laundering, related the company's role in the bankruptcy reorganization of Summit Accommodators Inc.
A Portland jury convicted three former owners of Summit Accommodators in 2013 of conspiracy to commit mail fraud and conspiracy to commit money laundering. The FBI said that, for a decade, the company used some $75 million of client funds for "undisclosed personal investments in real estate, investments in businesses ... and loans to business associates and family members."
Though Cox had allegedly posted numerous comments on the website "bankruptcycorruption.com" and elsewhere, only one of her blogs, posted on December 25, 2010, made it past summary judgment in. In that post, on which the 2011 defamation trial in Portland centered, Cox called Padrick a "a criminal" and accused him of "corruption and back alley handshakes," among other things.
U.S. District Judge Marco Hernandez ruled that the First Amendment protected the other blog posts, as they "employed figurative and hyperbolic language and could not be proved true or false," the appeals court summarized.
After a one-day trial, the jury determined that one post was enough to justify a $2.5 million defamation award for Padrick and Obsidian. Cox moved unsuccessfully for a new trial before taking the issue to the 9th Circuit, which reversed Friday.
The unanimous three-judge panel rejected Padrick and Obsidian's argument that the negligence standard established for private defamation actions by the U.S. Supreme Court in 1974's Gertz v. Robert Welch Inc. only applied to "the institutional press."
"The Gertz court did not expressly limit its holding to the defamation of institutional media defendants," Judge Andrew Hurwitz wrote for the three-judge panel. "And, although the Supreme Court has never directly held that the Gertz rule applies beyond the institutional press, it has repeatedly refused in non-defamation contexts to accord greater First Amendment protection to the institutional media than to other speakers."
Noting that the issue was one of first impression for the 9th Circuit, the panel found the "protections of the First Amendment do not turn on whether the defendant was a trained journalist, formally affiliated with traditional news entities, engaged in conflict-of-interest disclosure, went beyond just assembling others' writings, or tried to get both sides of a story."
"In defamation cases, the public-figure status of a plaintiff and the public importance of the statement at issue - not the identity of the speaker - provide the First Amendment touchstones," Hurwitz wrote.
The court likewise rejected arguments that Patrick and Obsidian were not required to show that Cox was negligent with her statements because the case is not a matter of public concern.
"Cox's allegations in this case are ... a matter of public concern," Hurwitz wrote. "Padrick was appointed by a United States Bankruptcy Court as the Chapter 11 trustee of a company that had defrauded its investors through a Ponzi scheme. That company retained him and Obsidian to advise it shortly before it filed for bankruptcy. The allegations against Padrick and his company raised questions about whether they were failing to protect the defrauded investors because they were in league with their original clients."
The panel further rejected a cross-appeal challenging the district court's refusal to consider Cox's other blog posts at trial.
"Cox's consistent use of extreme language negates the impression that the blog posts assert objective facts," Hurwitz wrote. "Cox regularly employed hyperbolic language in the posts, including terms such as 'immoral,' 'really bad,' 'thugs,' and 'evil doers.' Cox's assertions that 'Padrick hired a 'hit man' to kill her' or 'that the entire bankruptcy court system is corrupt' similarly dispel any reasonable expectation that the statements assert facts."
Cox's attorney, Eugene Volokh, a professor at the UCLA School of Law and a lawyer with Mayer Brown in Los Angeles, said that the ruling was an important one for the nonprofessional press, especially bloggers.
"I think it sets an important precedent that bloggers, for First Amendment purposes, have the same rights as others do, as for example the institutional media does," Volokh said in a phone interview. "There have been plenty of past cases around the circuits that point in that direction, but this is the first time that the 9th Circuit has specifically ruled on this, and this is one of the cases that has focused on bloggers. Most cases have dealt with other nonprofessional media, but this one is particularly the first clear blogging case that I know from the circuit courts."
Steven Wilker, a lawyer with Tonkon Torp for Padrick and Obsidian, voiced his disappointment with the ruling but emphasized "that the court concluded that there was no dispute that the statements were false and defamatory. "
"We also note that the court describes Ms. Cox as apparently having 'a history of making similar allegations and seeking payoffs in exchange for retraction,'" Wilker added in an email. "Ms. Cox's false and defamatory statements have caused substantial damage to our clients, and we are evaluating our options with respect to the court's decision."
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